Differences between Residential and Commercial Real Estate

The differences between residential and commercial real estate is as broad as investing in or living in the property. The differences can also be confusing because residential property can be considered commercial real estate. However, there are important aspects of real estate to remember when understanding the difference of residential and commercial real estate.

Residential Real Estate

Residential real estate includes homes, apartment buildings or condominiums. Typically, people buy residential property because they want to live in them. However, some people do choose to rent the property to tenants. One of the main differences is there are state and federal laws protecting people against bad or predatory lenders. Also, there are laws protecting tenants against inhabitable living conditions.

Commercial Real Estate

The term commercial real estate refers to the owning, leasing or selling of property that is used for income-producing purposes. Yes, people can purchase a home and rent it out. However, this is not commercial real estate. According to the Rain City Guide, there are four types of commercial real estate such as industrial, office, multi-family and retail properties. Multi-family dwellings or apartment buildings the most attainable for people interested in commercial real estate. Properties such as industrial, office buildings and retail properties such as malls acquire. Typically, the properties take a greater initial investment capital to purchase because they usually cost more than smaller apartment buildings. Also, owners of commercial real estate may defer their capital gains tax payment when they sell the property and buy property of the same value within 180 days of that particular tax year. According to the Internal Revenue Service (IRS), the owner can’t gain or lose money in the exchange of investment property of a like-kind.

Residential and Commercial Real Estate Loans

Residential loans are usually for one building which may include a single family or multi-family units. Typically, the prospective residential property owners provide lenders with personal information such as tax returns, bank statements and employment information. If lenders decide that the prospective owners can afford to buy the home without defaulting, then the loans are granted. However, commercial real estate loans are not based on investor(s) incomes. Instead loans are based on the commercial real estate financial situation such as the income it generated over a number of years and the amount of rent being collected. If lenders decide that the commercial real estate is not a good investment property, the owners will not receive the loans.